NEW YORK (Reuters) - Merck and Co MRK.N reported a fourth-quarter loss on Wednesday on legal settlement costs and sales that disappointed investors, sending shares down 4 percent.
Although the earnings before the charges beat Wall Street forecasts, analysts said cost cuts and lower taxes were more responsible for the better-than-expected results. Of particular concern was the performance of Gardasil, its vaccine to prevent cervical cancer.
Merck’s sales rose 3 percent to $6.24 billion, compared with the Reuters Estimates forecast of $6.28 billion, but would have fallen 1 percent if not favorable foreign exchange factors.
“It looks to me that the (earnings) beat is more a cost-containment issue than a top-line beat,” said Damien Conover, an analyst at Morningstar.
Analysts said the most favorable aspect of the earnings report is that Merck did not cut its 2008 profit forecast, despite negative publicity about trial results unveiled earlier this month for the blockbuster cholesterol fighter Vytorin that it co-markets with Schering-Plough Corp SGP.N.
The so-called Enhance trial showed Vytorin did not reduce fatty plaque in arteries, even though it sharply reduced levels of “bad” LDL cholesterol. The mixed results sparked a torrent of news coverage, including questions whether the cost of Vytorin and its sister drug Zetia were justified.
Combined quarterly sales of Vytorin and Zetia grew 34 percent to $1.5 billion, and reached $5.2 billion for the full year.
Deutsche Bank analyst Barbara Ryan said Vytorin sales could fall 10 percent this year from what she termed overly negative interpretations of the trial data, but Ryan predicted surprisingly high sales of other Merck products will offset any Vytorin declines.
Merck said it lost $1.63 billion, or 75 cents per share. That compared with a profit of $474 million, or 22 cents per share, in the year-earlier period when Merck took two significant special charges.
Excluding special items, Merck said it earned 80 cents per share. Analysts on average expected 73 cents per share, according to a poll by Reuters Estimates.
Special items included a $4.85 billion charge related to a legal settlement for its withdrawn Vioxx arthritis drug and combined charges of $945 million related to restructuring and government civil investigations.
The Vioxx settlement offer, announced in November, calls for $4 billion to be divided among former users of Vioxx who allege it caused them to have heart attacks, and $850 million for those who suffered strokes. More than 57,000 plaintiffs have registered to participate in the settlement.
Gardasil, the new vaccine to prevent cervical cancer, posted $339 million in sales and helped drive Merck’s total revenue from vaccines to $1.1 billion.
However, Gardasil sales were well below the $449 million expected by analysts at Goldman Sachs.
Merck shares have slumped some 20 percent since results of the Vytorin trial became public, after having been delayed since the trial concluded in April 2006. Vytorin combines Zetia with simvastatin, a relatively inexpensive generic cholesterol drug.
Merck said it has become aware of or has been served with about 50 civil class-action lawsuits since mid-January alleging consumer fraud in connection with the promotion of Vytorin and Zetia.
Vytorin prescriptions have fallen since the Enhance trial results, even as Merck girds for U.S. generic competition beginning next week for its blockbuster osteoporosis drug Fosamax.
Sales of Gardasil and other new Merck products for diabetes are expected to help offset the blow.
Merck shares fell $1.92 to $46.09 in morning trading on the New York Stock Exchange.
(Additional reporting by Toni Clarke in Boston)
Reporting by Ransdell Pierson and Lewis Krauskopf; Editing by Maureen Bavdek
Our Standards: The Thomson Reuters Trust Principles.